New Delhi: The ongoing West Asia conflict and disruptions in the Strait of Hormuz pose a significant risk to the Indian economy, as elevated crude oil prices are likely to exert pressure on inflation, the rupee and the current account, a Union Bank of India report said.
It added that “higher oil keeps inflation risks elevated, delays central bank easing, pressures current accounts, tightens financial conditions, and weighs on risk assets, especially in energy-importing economies,” underscoring the vulnerability of countries such as India, the report said.
For India, which imports nearly 85 per cent of its crude oil, the impact is already visible, the report said, noting that disruptions in Hormuz flows have pushed oil prices above $100 per barrel, effectively translating into a visible “energy tax” on the economy.
In its report titled “From Hormuz to the Rupee: War, Oil and the Global Repricing of Risk”, Union Bank of India said that with the Strait of Hormuz “still functionally shut and Brent trading above $100 per barrel, the backdrop does not bode well for global or domestic macroeconomic conditions and markets.”
“As the escalation of the Iran-Israel conflict disrupted flows through the Strait of Hormuz, pushing Brent crude oil above $100 per barrel, it translated into a visible ‘energy tax’, with the rupee sliding to record lows near 95 and equities correcting on concerns over the current account deficit and imported inflation,” the report said.
The Indian rupee has remained under pressure amid these global headwinds, with the report noting that the currency “exhibited a modest depreciation bias, as strong global dollar momentum, intermittent capital outflows and elevated geopolitical uncertainties outweighed otherwise resilient domestic fundamentals”.
The Reserve Bank of India has stepped in to stabilise markets, the report said, noting that the central bank has taken multiple measures, including tighter forex exposure caps and liquidity support, while maintaining its policy stance.
“The RBI’s Monetary Policy Committee (MPC) maintained the policy repo rate unchanged at 5.25 per cent, while reiterating the neutral stance,” it said, adding that the central bank remains ready to act in case of excessive volatility.
On the external front, India’s trade balance has shown signs of resilience, with the report noting that the merchandise trade deficit narrowed to $20.7 billion in March 2026, aided by lower imports of bullion and energy.
However, risks remain elevated. The report cautioned that if disruptions persist, “Brent is likely to remain in the $100–110 per barrel range, raising the risk of fuel price pass-through and pushing CPI inflation above 4 per cent.”
It further highlighted the sensitivity of India’s macroeconomic indicators to oil prices, stating that “every $10 per barrel increase in crude prices” could significantly widen the current account deficit and add to inflationary pressures.
